Bank Rescue Scheme Elicits Thumbs Down Reaction

February 10, 2009

Things are not going well on this critical day in the financial and economic crisis.  U.S. stocks and the dollar are trading lower in instant reaction to revamped details of Washington’s bank rescue plan.  Investors and analysts are complaining about the scheme’s ambiguity, complexity, and significant difference from previously leaked information to the press.  The expectation of simplicity was plainly unrealistic.  The real estate/banking debacle was built on radically transformed assets, whose details and associated risk were unfathomable.  A simplistic deconstruction of the resulting mess was not going to happen, and it’s not surprising to see the fear factor now shooting off the charts.  Fear is reflected in a market that runs away each time an opportunity arises to wipe the slate clean and begin anew.  The DOW fell by 5.0% and 4.8% on the first two trading days after the November election, by 4.8% in the first full week of 2009 and by 8.8% in the first month of this year.  It is struggling to stay close to 8K at this writing.

Experts disagree on what’s to be done, but the truth is nobody has sure answers.  Maybe no solution to the economic problem exists, or it is one that will take generations to find like ending cancer.  Fighting a debt addiction with more massive debt understandably looks intuitively misguided, even if it happens to be better than alternative strategies.  So many institutions have blatantly failed society: regulators, elected politicians, bureaucrats, central bankers, corporate CEO’s, bankers, investment bankers, and the press.  Even Adam Smith’s invisible hand has seemingly fumbled the ball.  Make no mistake, no less than capitalism and democracy are on trial.  A good first step would be to address mass distrust with persuasive communication.  Prepped by the earlier hunt for weapons of mass destruction, it’s easy to see shifting details of the bank rescue as another government bait and switch.  A process of trial and error is unavoidable as was the case in the 1930’s.  So sending out the message that the sums to be spent are too big to allow a Plan B likely corrodes confidence and should be avoided.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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